Pakistan's finance minister paints a bright economic picture

Ishaq Dar lauds infrastructure and development partnerships as a path to growth

GO YAMADA, Nikkei senior staff writer

YOKOHAMA, Japan Pakistan is determined to funnel more money toward infrastructure, small businesses and the poor, and the government has found an array of international partners to make it happen.

Finance Minister Ishaq Dar recently spoke with The Nikkei about Pakistan's development drive and the federal budget for the coming fiscal year through June 2018, which he said will focus on generating 6% gross domestic product growth.

Dar is arguably the most influential member of Prime Minister Nawaz Sharif's cabinet. When Sharif was in exile during the rule of Pervez Musharraf, who led the country from 1999 to 2008, Dar was a key caretaker for Sharif's Pakistan Muslim League (Nawaz) party.

Speaking about the budget to be announced on May 26, Dar said: "After [achieving] macroeconomic stability, we have fully focused on higher GDP growth that brings a better life to people, better per capita income, job opportunities and fills the gap in infrastructure demand."

Next fiscal year, he said, "our efforts will give [growth] another boost. Some fiscal measures and policies will be introduced."

FUNDING DEVELOPMENT Dar pointed to a recent agreement with the World Bank-affiliated International Finance Corporation to set up a Pakistan Infrastructure Bank.

The bank will provide financing for infrastructure projects undertaken by the private sector, he said, describing the new lender as an "equal partnership by the Pakistan government and IFC for 20% each." Other stakeholders from around the world will account for the rest, he said. The bank is expected to have paid-up capital of $1 billion.

And the infrastructure bank is just one piece of the puzzle. "With partnerships with the U.K.'s Department for International Development and the German government-owned development bank KfW, we have created the Pakistan Microfinance Investment Co.," Dar said. Its three-year business plan calls for boosting the number of "beneficiaries of microfinance from the current 4 million to 10 million."

The government, the U.K. aid agency and KfW are teaming up to create the Pakistan Poverty Alleviation Fund. Pakistan will hold 49% of the fund, with the U.K. and German partners holding 37% and 14%, respectively.

Islamabad has also established the Pakistan Development Fund, which will invest in public-sector projects outside the budget. The government's initial investment comes to $1.5 billion.

FASTER THAN IT LOOKS As for the economy, Dar said the government is "hoping for over 5% growth" for the current fiscal year, noting that the "World Bank is projecting 5.2% in 2017 and 5.5% in 2018."

Looking ahead, he suggested 6% growth is possible for next fiscal year, and that it could reach 7% the following year. "Our GDP is reportedly underestimated by 22-25%. If [the reported growth rate for] fiscal 2017-18 is 6%, it will be actually 7% or more," Dar said.

According to Dar, an old method of calculating national output is responsible for the discrepancy. "It has to be upgraded," he said. "And businesses, especially small and medium-sized businesses, have not been [brought into] the database on which GDP is calculated over 10 years."

To paint a more accurate picture, Dar said he recently "authorized the World Bank to carry out a study, and they will take one year."

UNDAUNTED BY DEFICITS Although Pakistan has had success containing inflation and attracting foreign direct investment, its fiscal and current-account deficits are a risk factor. Dar, however, disputed that, saying: "The fiscal deficit is not an issue. From fiscal 2012-13 to 2015-16, we cut the fiscal deficit from 8.8% to 4.6% of GDP. This fiscal year, we expect it will be close to 4.1%."

Dar chalked up the deficit to two major budget items. One is infrastructure development. "We see a jump from 600 billion rupees ($5.73 billion) in fiscal 2012-13 to 1,600 billion rupees in fiscal 2016-17."

He also said social security -- cash transfers to the poor -- has increased from 40 billion rupees to 117 billion rupees over the same period.

"The fiscal deficit is less than the development expenditure," Dar said. "It means Pakistan is no longer borrowing for revenue expenditure but only for capital investment. It is a very healthy sign."